• Shuffle
    Toggle On
    Toggle Off
  • Alphabetize
    Toggle On
    Toggle Off
  • Front First
    Toggle On
    Toggle Off
  • Both Sides
    Toggle On
    Toggle Off
  • Read
    Toggle On
    Toggle Off
Reading...
Front

How to study your flashcards.

Right/Left arrow keys: Navigate between flashcards.right arrow keyleft arrow key

Up/Down arrow keys: Flip the card between the front and back.down keyup key

H key: Show hint (3rd side).h key

A key: Read text to speech.a key

image

Play button

image

Play button

image

Progress

1/267

Click to flip

267 Cards in this Set

  • Front
  • Back
American Style Option
An option contract that can be exercised at any time between the date of purchase and the expiration date. Most exchange-traded options are American style.
Arbitrage
The simultaneous purchase and sale of identical financial instruments or commodity futures in order to make a profit where the selling price is higher than the buying price.
Ask
The price that market makers or sellers will accept to sell an option.
Assignment
When an options holder excercises the contract, an options writer is chosen to fulfill the obligation.
At-The-Money
A term that describes an option with a strike price that is equal to the current market price of the underlying stock.
Bear
An investor who acts on the belief that a security or the market is falling or is expected to fall.
Bear Call Spread
A strategy in which a trader sells a lower strike call and buys a higher strike call to create a trade with limited profit and limited risk. A fall in the price of the underlying increases the value of the spread. Net credit transaction; Maximum loss = difference between the strike prices less credit; Maximum gain = credit; requires margin.
Bear Market
A declining stock market over a prolonged period of time usually caused by a weak economy and subsequent decreased corporate profits.
Bear Put Spread
A strategy in which a trader sells a lower strike put and buys a higher strike put to create a trade with limited profit and limited risk. A fall in the price of the underlying increases the value of the spread. Net debit transaction; Maximum loss = d ifference between strike prices less the debit; no margin.
Bid
The highest price at which a floor broker, trader or dealer is willing to buy a security or commodity for a specified time.
Bid and Asked
The bid (the highest price a buyer is prepared to pay for a trading asset) and the asked (the lowest price acceptable to a prospective seller of the same security) together comprise a quotation, or quote.
Bid Up
Demand for an asset drives up the price paid by buyers.
Bid-asked Spread
The difference between bid and asked prices constitute the bid-asked spread.
Black-Scholes formula
The first widely-used model for option pricing. This formula can be used to calculate a theoretical value for an option using current stock prices, expected dividends, the option's strike price, expected interest rates, time to expiration and expected stock volatility. While the Black-Scholes model does not perfectly describe real-world options markets, it is still often used in the valuation and trading of options.
Blue Chip Stock
A stock with solid value, good security, and a record of dividend payments or other desirable investment characteristics. Many times they have a record of consistent dividend payments, receive extensive media coverage and offer a host of other benefic ial investment attributes. On the downside, blue chip stocks tend to be quite expensive and often have little room for growth.
Blue Chips
This term is derived from poker where blue chips hold the most value. Blue chips in the stock market are stocks with the best market capitalization in the marketplace.
Bond
Financial instruments representing debt obligations issued by the government or corporations traded in the futures market. A bond promises to pay its holders periodic interest at a fixed rate (the coupon), and to repay the principal of the loan at mat urity. Bonds are issued with a par or face value of $1,000. Bonds are traded based upon their interest rates - if the bond pays more interest than available elsewhere, its worth increases.
Break-even
The point at which gains equal losses. The market price that a stock or future must reach for an option to avoid loss if exercised. For a call, the break-even equals the strike price plus the premium paid. For a put, the break-even equals the strike price minus the premium paid.
Breakout
A rise in the price of an underlying instrument above its resistance level or a drop below the support level.
Bull
An investor who believes that a market is rising or is expected to rise.
Bull Call Spread
A strategy in which a trader buys a lower strike call and sells a higher strike call to create a trade with limited profit and limited risk. A rise in the price of the underlying increases the value of the spread. Net debit transaction; Maximum loss = debit; Maximum gain = difference between strike prices less the debit; no margin.
Bull Market
A rising stock market over a prolonged period of time usually caused by a strong economy and subsequent increased corporate profits.
Bull Put Spread
A strategy in which a trader sells a higher strike put and buys a lower strike put to create a trade with limited profit and limited risk. A rise in the price of the underlying increases the value of the spread. Net credit transaction; Maximum loss = difference between strike prices less credit; Maximum gain = credit; requires margin.
Butterfly Spread
The sale (purchase) of two identical options, together with the purchase (sale) of one option with an immediately higher strike, and one option with an immediately lower strike. All options must be the same type, have the same underlying and have the same expiration date.
Buy IV Sell IV
Many options are spreads that have a buy option leg and a sell option leg. Buy IV is the implied volatility of the option leg with a buy component. Sell IV is the implied volatility of the option leg with a sell component.
Buy on Close
To buy at the end of a trading session at a price within the closing range.
Buy on Opening
To buy at the beginning of a trading session at a price within the opening range.
Buy Stop Order
An order to purchase a security entered at a price above the current offering price triggered when the market hits a specified price.
Buyer
If you purchase an options contract, regardless of whether you're opening or closing a position, you're a buyer.
Buy-write
A covered call position in which stock is purchased and an equivalent number of calls written at the same time. This position may be transacted as a combined order, with both sides (buying stock and writing calls) being executed simultaneously. Example: buying 500 shares XYZ stock, and writing 5 XYZ May 60 calls. See also Covered call / covered call writing
Calendar Spread
A spread consisting of one long and one short option of the same type with the same exercise price, but which expire in different months.
Call Option
An option contract which gives the holder the right, but not the obligation, to buy a specified amount of an underlying security at a specified price within a specified time in exchange for a paying a premium.
Call Premium
The amount a call option costs.
Capital
The amount of money an individual or business has available.
Capital Gain
The profit realized when a capital asset is sold for a higher price than the purchase price.
Capital Loss
The loss incurred when a capital asset is sold for a lower price than the purchase price.
Capitalization
Refers to the current value of a corporation's outstanding shares in dollars.
Capped-style Option
An option with an established profit cap or cap price.
Cash Account
An account in which the customer is required to pay in full for all purchased securities.
Cash Dividend
A dividend paid in cash to a shareholder out of a corporation's profits.
Change
The difference between the current price and the price of the previous day of a security.
Chicago Board of Trade (CBOT)
Established in 1886, the CBOT is the oldest commodity exchange in the United States and primarily lists grains, T-Bonds and notes, metals and indexes.
Chicago Board Options Exchange (CBOE)
The largest options exchange in the United States.
Class of Options
Option contracts of the same type (call or put), style and underlying security.
Clearinghouse
An institution established separately from the exchanges to ensure timely payment and delivery of securities.
Close
The price of the last transaction for a particular security each day.
Close
A reduction or an elimination of an open position by the appropriate offsetting purchase or sale. An existing long option position is closed by a selling transaction. An existing short option position is closed by a purchase transaction. This transaction will reduce the open interest for the specific option involved.
Closing Purchase
A transaction to eliminate a short position.
Closing Range
The high and low prices recorded during the period designated as the official close.
Closing Sale
A transaction to eliminate a long position.
Collar
A protective strategy in which a written call and a long put are taken against a previously owned long stock position. The options may have the same strike price or different strike prices and the expiration months may or may not be the same. For example, if the investor previously purchased XYZ Corporation at $46 and it rose to $62, a 'collar' involving the purchase of a May 60 put and the writing of a May 65 call could be established as a way of protecting some of the unrealized profit in the XYZ Corporation stock position. The reverse -- a long call combined with a written put -- might also be used if the investor has previously established a short stock position in XYZ Corporation. See also Fence
Commission
A service charge assessed by a broker and his/her investment company in return for arranging the purchase or sale of a security.
Condor
The sale or purchase of 2 options with consecutive exercise prices, together with the sale or purchase of 1 option with an immediately lower exercise price and 1 option with an immediately higher exercise price.
Consumer Price Index (CPI)
A measure of price changes in consumer goods and services. This index is used to identify periods of economic inflation or deflation.
Contract
A unit of trading for a financial or commodity future, or option.
Correction
A sudden decline in the price of a security after a period of market strength.
Covered Call
A short call option position against a long position in an underlying stock or futures. An option strategy in which a call option is written against an equivalent amount of long stock. Example: writing 2 XYZ May 60 calls while owning 200 shares or more of XYZ stock. See also Buy-write and Overwrite
Covered Put
A short put option position against a short position in an underlying stock or futures.
Credit Spread
The difference in value between 2 options, where the value of the short position exceeds the value of the long position.
Cross Rate
The current exchange rate between differing currencies.
Daily Range
The difference between the high and low price of a security in one trading day.
Day Trade
The purchase and sale of a position in the same day.
Day Trading
An approach to trading in which the same position is entered and exited within one day.
Debit Spread
The difference in value between 2 options, where the value of the long position exceeds the value of the short position.
Deep-in-the-Money
A deep-in-the-money call option has a strike price well below the current price of the underlying instrument. A deep-in-the-money put option has a strike price well above the current price of the underlying instrument. Both primarily consist of intrinsic value.
Delta
The amount by which the price of an option changes for every dollar move in the underlying instrument.
Delta Neutral
A position arranged by selecting a calculated ratio of short and long positions that balance out to an overall position delta of zero.
Delta Position
A measure of option or underlying securities delta.
Delta-Hedged
An options strategy protecting an option against price changes in the option's underlying instrument by balancing the overall position delta to zero.
Derivative
Financial instruments based on the market value of an underlying asset.
Divergence
When 2 or more averages or indices fail to show confirming trends.
Dividend
A sum of money paid out to a shareholder from the stock's profits.
Dow Jones Industrial Average (DJIA)
Used as an overall indicator of market performance, this average is composed of 30 blue chip stocks which are traded daily on the New York Stock Exchange.
Downside
The potential for prices to decrease.
Downside Risk
The potential risk one takes if prices decrease in directional trading.
End of Day
The close of the trading day when market prices settle.
Equilibrium
A price level in a sideways market equal-distance from the resistance and support levels.
Equity option
An option on shares of an individual common stock or exchange traded fund.
European Style Option
An option contract that can only be exercised on the expiration date.
Exchange
An area where an asset, option, future, stock or derivative is bought and sold.
Exchange Rate
The price at which one country's currency can be converted into another country's currency.
Execution
The process of completing an order to buy or sell securities.
Exercise
Implementing an option's right to buy or sell the underlying security.
Exercise Price
A price at which the stock or commodity underlying a call or put option can be purchased (call) or sold (put).
Expected Profit
The stock price is randomly projected into the future using the stock's 20-day statistical (historical) volatility (SV) in the Optionetics option trade ranker tool. The stock price projection stops at the expiration of the earlist expiring option leg. The stock price future statistical distribution at option expiration is used to compute possible profits and losses. Expected Profit is the predicted profits minus the predicted losses expressed in total dollars.
Expiration
The date and time after which an option may no longer be exercised.
Expiration Date
The last day on which an option may be exercised.
Explosive
An opportunity that can yield large profits with usually a limited risk in a short amount of time.
Extrinsic Value
The price of an option less its intrinsic value. An out-of-the money option's worth consists of nothing but extrinsic or time value.
Fade
Selling a rising price or buying a falling price.
Fair Market Value
The value of an asset under normal conditions.
Fill
An executed order.
Fill or Kill
Placing an order to buy or sell an exact number of units or none at all.
Fill Order
An order that must be filled or canceled immediately.
Financial Instruments
The term used for debt instruments.
Fixed Delta
A delta figure that does not change with the change in the underlying. A futures contract has a fixed delta of plus or minus 100.
Fluctuation
A variation in the market price of a security.
Front Month
The first expiration month in a series of months.
Fundamental Analysis
An approach to trading research to predict futures and stock price movements based on a balance sheet and income statements, past records of earnings, sales, assets, management, products and services.
Futures
All contracts covering the purchase and sale of financial instruments or physical commodities for future delivery. These orders are transacted on a commodity futures exchange.
Futures Contract
Agreement to buy or sell a set number of shares of a commodity or financial instruments in a designated future month at a price agreed upon by the buyer and seller.
Gamma
The degree by which the delta changes with respect to changes in the underlying instrument's price.
Gap
A day in which the daily range is completely above or below the previous day's daily range.
Go Long
To buy securities, options or futures.
Go Short
To sell securities, options or futures.
Good Til' Canceled Order (GTC)
Sometimes simply called "GTC", it means an order to buy or sell stock that is good until you cancel it.
Guts
A strangle where the call and the put are in-the-money.
Hammering the Market
The intense selling of stocks by speculators who think the market is about to drop because they think prices are inflated.
Hedge
Reducing the risk of loss by taking a position through options or futures opposite to the current position they hold in the market.
High (hi)
The highest price that was paid for a stock during a certain period.
High and Low
Refers to the high and low transactions prices that occur each trading day.
High Flyer
A speculative high-priced stock that moves up and down sharply over a short period of time.
Historic Volatility
A measurement of how much a contract's price has fluctuated over a period of time in the past; usually calculated by taking a stand`ard deviation of price changes over a time period.
Holder
One who purchases an option.
Illiquid Market
Market which has no volume that subsequently creates a lot of slippage due to lack of trading volume.
Immediate/Cancel
An order which must be filled immediately or canceled.
Index
An index is a group of stocks which can be traded as one portfolio, such as the S&P 500. Broad-based indexes cover a wide range of industries and companies and narrow-based indexes cover stocks in one industry or economic sector.
Index Options
Call options and put options on indexes of stocks are designed to reflect and fluctuate with market conditions. Index options allow investors to trade in a specific industry group or market without having to buy all the stocks individually.
Interest Rate
The charge for the privilege of borrowing money, usually expressed as an annual percentage rate.
Interest Rate Driven
Refers to a point in the business cycle when interest rates are declining and bond prices are rising.
Inter-market Analysis
Observing the price movement of one market for the purpose of evaluating a different market.
Inter-market Spread
A spread consisting of opposing positions in instruments with two different markets.
In-the-Money
If you were to exercise an option and it would generate a profit at the time, it is known to be in the money.
In-the-Money Option
A "call" option is in-the-money if the strike price is less than the market price of the underlying security. A "put" option is in-the-money if the strike price is greater than the market price of the underlying security Intrinsic Value The amount by which a market is in-the-money. Out-of-the-money options have no intrinsic value. Calls = underlying -strike price. Puts = strike price - underlying.
Intrinsic value
The in-the-money portion of an option's price. See also In-the-money option . The value of an option if you excercised it at a given moment. Out-of-the money and at-the-money options have no intrinsic value. For in-the-money options, the intrinsic value is the difference between the strike price and the underlying stock price.
Iron Butterfly
The combination of a long (short) straddle and a short (long) strangle. All options must have the same underlying and have the same expiration.
LEAPS
Long-term stock or index options which are available with expiration dates up to three years in the future.
Leg
One side of a spread.
Leverage
A term describing the greater percentage of profit or loss potential when a given amount of money controls a security with a much larger face value. For example, a call option enables the owner to assume the upside potential of 100 shares of stock by investing a much smaller amount than that required to buy the stock. If the stock increases by 10 percent, for example, the option might double in value. Conversely, a 10 percent stock price decline might result in the total loss of the purchase price of the option.
Limit Move
The maximum daily price limit for an exchange traded contract.
Limit Order
An order to buy a stock at or below a specified price or to sell a stock at or above a specified price.
Limit Up, Limit Down
Commodity exchange restrictions on the maximum upward or downward movements permitted in the price for a commodity during any trading session day.
Liquidity
The ease with which an asset can be converted to cash in the marketplace. A large number of buyers and sellers and a high volume of trading activity provide high liquidity.
Locked Market
A market where trading has been halted because prices have reached their daily trading limit.
Long
The term used to describe the buying of a security, contract, commodity, or option. When you own a security or option…You might have a long porition, or be long.
Low (lo)
This is the lowest price paid for a stock during a certain period.
Low Risk Investing
A trade which is hedged for purposes of limiting price loss as opposed to a directional trade where loss is unlimited.
Make a Market
A market maker stands ready to buy or sell a particular security for his/her own account to keep the market liquid.
Margin
A deposit contributed by a customer as a percentage of the current market value of the securities held in a margin account is thus the margin amount. This amount changes as the price of the investment changes.
Margin Account
A customer account in which a brokerage firm lends the customer part of the purchase price of a trade.
Margin Call
A call from a broker signaling the need for a trader to deposit additional money into a margin account to maintain a trade.
Margin Requirements (Options)
The amount of cash an uncovered (naked) option writer is required to deposit and maintain to cover his daily position price changes.
Marked to Market
At the end of each business day the open positions carried in an account held at a brokerage firm are credited or debited funds based on the settlement price of the open positions that day.
Market on Close
An order specification that requires the broker to get the best price available on the close of trading, usually during the last five minutes of trading.
Market Order
Buying or selling securities at the price given at the time the order reached the market. A market order is to be executed immediately at the best available price, and is the only order that guarantees execution.
Market Price
The most recent price at which a security transaction took place.
Market Value
The price at which investors buy or sell a share of common stock or a bond at a given time. Market value is determined by the interaction between buyers and sellers.
Mark-to-Market
The daily adjustment of margin accounts to reflect profits and losses. In this way, losses are never allowed to accumulate.
Married put strategy
The simultaneous purchase of stock and put options representing an equivalent number of shares. This is a limited risk strategy during the life of the puts because the stock can always be sold for at least the strike price of the purchased puts.
Max Loss
The maximum amount of losses possible from the option trade in the Optionetics option trade ranker tool.
Max Profit
The maximum amount of net profit possible from the option trade in the Optionetics option trade ranker tool.
Mid-cap Stocks
Usually solidly established medium growth firms with less than 100 billion in assets. They provide better growth potential than blue-chip stocks, but do not offer as wide a variety of investment attributes.
Model
A model value for the option quote is the Bjerksund and Stensland Approximation of the Black-Scholes "fair" value of the option based on the estimated IV from the stock's other options.
Model Profit
The Optionetics option trade ranker tool software uses an option mathematical model ( the Bjerksund Stensland American option model) to fairly price the option. The Optionetics software computes what the profit of the option strategy would be using the mathematical model option prices. The profit value is called the Model Profit. If this "model profit", when the trade is formed, is close to the profit of 0.0 ( a new trade should start with no profit ) then we are confident the option data being used for the trade is good. Model profits that exceed $200 likely are caused by incorrect option data.
Momentum
When a market continues in the same direction for a certain time frame, the market is said to have momentum.
Momentum Indicator
A technical indicator utilizing price and volume statistics for predicting the strength or weakness of a current market.
Momentum Trading
Investing with (or against) the momentum of the market in hopes of profiting from it.
Moving Averages
The moving average is probably the best known, and most versatile, technical indicator. A mathematical procedure in which the sum of a value plus a selected number of previous values are divided by the total number of values. Used to smooth or eliminate t he fluctuations in data and to assist in determining when to buy and sell.
Naked call
You write a call on a stock you don't hold.
Naked Option
An option written (sold) without an underlying hedge position.
Naked Position
A securities position not hedged from market risk.
Narrowing the Spread
The closing spread between the bid and asked prices of a security as a result of bidding and offering.
Near-the-Money
An option with a strike price close to the current price of the underlying tradable.
Note
A short-term debt security, usually maturing in five years or less.
Odds
Odds is the predicted profits divided by the predicted losses obtained by projecting the stock price randomly into the future using the Statistical Volatility (SV). The prediction stops at the expiration of the earlist expiring option leg.
Offer
The lowest price at which a person is willing to sell.
Offer Down
The change of the offer of the market related to a downward price movement at that specific time.
Offset
To liquidate a futures position by entering an equivalent but opposite transaction. To offset a long position, a sale is made; to offset a short position, a purchase is made.
On-the-Money
The option in question is trading at its exercise price (also referred to as at-the-money)..
Open
If you purchase or write an option, creating a new position on that option, you establish an open position.
Open interest
The total number of outstanding option contracts on a given series or for a given underlying stock.
Open Order
An order to buy or sell a security at a specified price, valid until executed or canceled.
Opening Price
The range of prices at which the first bids and offers were made or first transactions were completed.
Opportunity Costs
The theoretical cost of using your capital for one investment versus another.
Option
A security that represents the right, but not the obligation, to buy or sell a specified amount of an underlying security (stock, bond, futures contract, etc.) at a specified price within a specified time.
Option Holder
The buyer of either a call or put option.
Option Premium
This is the price of an option.
Option Writer
The seller of either a call or put option.
Options chain
A tool that lets you see all the available options for an underlying stock, including their prices and other trading data.
Options class
All the calls or all the puts on an underlying security.
Options series
All the calls or puts on an underlying stock with identical terms, including expiration month and strike price.
Order
A ticket or voucher representing long or short securities and options.
Order Flow
The volume of orders being bought or sold on the exchanges.
Out-of-the-Money
An option whose exercise price has no intrinsic value. When a call's strike price is above the underlying stock price, or a put's strike price is below the stock price.
Out-of-the-Money Option (OTM)
A call option is out-of-the-money if its exercise or strike price is above the current market price of the underlying security. A put option is out-of-the-money if its exercise or strike price is below the current market price of the underlying securi ty.
Overvalued
A term used to describe a security or option whose current price is not justified.
Par
The stated or "nominal" value of a bond (typically $1,000) that is paid to the bondholder at maturity.
paste text
An order to buy or sell a security which expires if not filled by the end of the day.
Perceived Risk
The theoretical risk of a trade in a specific time frame.
Point Spread
The price movement required for a security to go from one "full point" level to another (i.e. stock goes up or down $1).
Points
Points apply to security prices. In the case of shares, one point indicates $1.00 per share. For bonds, , one point means 1% of par value. Commodities differ from market to market.
Position
The total of a trader's open contracts.
Position Delta
The sum of all positive and negative deltas in a hedged position.
Position Limit
The maximum number of open contracts in a single underlying instrument.
Premium
The amount of cash that an option buyer pays to an option seller. The price you pay if you are an options buyer, or the amount you receive if you're an options writer.
Price
Price of a share of common stock on the date shown. Highs and lows are based on the highest and lowest intra-day trading price.
Price / Earnings Ratio (PE)
A technical analysis tool for comparing the prices of different common stocks by assessing how much the market is willing to pay for a share of each corporation's earnings. PE is calculated by dividing the current market price of a stock by the earnin gs per share.
Principal
The initial purchase price of a bond on which interest is earned.
Probability of Profit
Probability of Profit is the probability that the predicted stock price falls within the option trade's profit zones. The predicted stock price distribution is computed by projecting the stock price randomly into the future using the SV. The prediction stops at the expiration of the earlist expiring option leg.
Protective put
You purchase a put on stock you already own.
Put Option
An option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security at a specified price within a specified time. The put option buyer hopes the price of the shares will drop by a specific date w hile the put option seller (or writer) hopes that the price of the shares will rise, remain stable, or drop by an amount less than their profit on the premium by the specified date.
Quickie
An order that must be filled as soon as it reaches the trading floor at the price specified, or be canceled immediately.
Quote
The price being offered or bid by a market maker or broker-dealer for a particular security.
Quoted Price
Refers to the price at which the last sale and purchase of a particular security or commodity took place.
Ratio Backspread
A delta neutral spread where an uneven amount of contracts are bought and sold with a ratio less than 2 to 3. Optimally no net credit or net debit occurs.
Ratio Call Spread
A bearish or stable strategy in which a trader buys 2 higher strike calls and sell1 lower strike call. This strategy offers limited risk and unlimited profit potential.
Ratio Put Spread
A bullish or stable strategy ion which a trader buys 1 higher strike put and sells two lower strike puts. This strategy offers limited risk and unlimited profit potential.
Relative Strength
A stock's price movement over the past year as compared to a market index.
Relative Strength Index (RSI)
An indicator used to identify price tops and bottoms.
Reversal Stop
A stop that, when hit, is a signal to reverse the current trading position, i.e., from long to short. Also known as stop and reverse.
Reward-Risk Ratio
The mathematical relationship between the maximum potential risk and maximum potential reward of a trade.
Risk Profile
A graphic determination of risk on a trade. This would include the profit and loss of a trade at any given point for any given time frame.
Rolling
A trading action in which the trader simultaneously closes an open option position and creates a new option position at a different strike price, different expiration, or both. Variations of this include rolling up, rolling down, rolling out and diagonal rolling.
Round-turn
Procedure by which a long or short position is offset by an opposite transaction.
Seasonal Market
A market with a consistent but short-lived rise or drop in market activity due to predictable changes in climate or calendar.
Seller
If you sell an option, whether opening a new position or closing an existing position, you're a seller.
Selling Short
The practice of borrowing a stock, future or option from a broker and selling it because the investor forecasts that the price of a stock is going down.
Series (Options)
All option contracts of the same class that also have the same unit of trade, expiration date, and exercise price.
Short
The selling of a security, contract or commodity not owned by the seller..
Short
When you have written an option. You may have a short position, or be short.
Short Selling
The sale of shares or futures that a seller does not currently own. The seller borrows them (usually from a broker) and sells them with the intent to replace what s/he has sold through later repurchase in the market at a lower price.
Small-cap Stocks
Up-and-comer companies that offer big rewards and higher risks. They tend to cost less than mid-caps and have lower liquidity. However, small amounts of media coverage can prompt big gains.
Spike
A sharp price rise in one or two days indicating the time for an immediate sale.
Spread
The difference between the bid and the ask prices of a security. Also may refer to an options strategy that calls for you to hold two or more simultaneous positions.
Stop order
A type of contingency order, often erroneously known as a 'stop-loss' order, placed with a broker that becomes a market order when the stock trades, or is bid or offered, at or through a specified price. See also Stop-limit order
Stop-limit order
A type of contingency order placed with a broker that becomes a limit order when the stock trades, or is bid or offered, at or through a specific price.
Stops
Buy stops are orders that are placed at a specified price over the current price of the market. Sell stops are orders that are placed with a specified price below the current price.
Straddle
A position consisting of a long (short) call and a long (short) put, where both options have the same strike price and expiration date.
Strangle
A position consisting of a long (short) call and a long (short) put where both options have the same underlying, the same expiration date, but different strike prices. Most strangles involve OTM options.
Strike Price (Exercise Price)
A price at which the stock or commodity underlying a call or put option can be purchased (call) or sold (put) over the specified period.
Support
A historical price level at which falling prices have stopped falling and either moved sideways or reversed direction.
Swings
The measurement of price movement between extreme highs and lows.
Synthetic Long Call
A long put and a long stock or future.
Synthetic Long Put
A long call and a short stock or future.
Synthetic Long Stock
A short put and a long call.
Synthetic Short Call
A short put and a short stock or future.
Synthetic Short Put
A short call and a long stock or future.
Synthetic Short Stock
A short call and a long put.
Synthetic Straddle
Futures and options combined to create a delta neutral trade.
Synthetic Underlying
A long (short) call together with a short (long) put. Both options have the same underlying, the same strike price and the same expiration date.
Technical Analysis
A method of evaluating securities and commodities by analyzing statistics generated by market activity, such as past prices, volume, momentum and stochastics.
Terms
The characteristics of your option, including strike price, exercise style and expiration date.
Theoretical value
An option value generated by a mathematical option's pricing model to determine what an option is really worth.
Theta
The Greek measurement of the time decay of an option.
Tick
A minimum upward or downward movement in the price of a security. For example, bonds trade in 32nds, while most stocks trade in eighths.
Time Decay
The amount of time premium movement within a certain time frame on an option due to the passage of time in relation to the expiration of the option itself.
Time Premium
The additional value of an option due to the volatility of the market and the time remaining until expiration.
Time Value (Extrinsic Value)
The amount that the current market price of a right, warrant or option exceeds its intrinsic value.
Treasury Bill (T-Bill)
These are short-term government securities with maturities of no more than one year.
Treasury Bond (T-Bond)
A fixed-interest U.S. government debt security with a maturity of 10 years or more..
Treasury Note (T- Note)
A fixed-interest U.S. government debt security with a maturity of between one and ten years.
Triple Witching Day
The third Friday in March, June, September and December when U.S. options, index options and futures contracts all expire simultaneously often resulting in massive trades.
Type
The classification of an option contract as either a put or a call.
Uncovered Option
A short option position, also called a "naked" option, in which the writer does not own shares of underlying stock. This is a much riskier strategy than a covered option.
Underlying Instrument
A trading instrument subject to purchase upon exercise.
Undervalued
A security selling below the value the market value analysts believe it is worth.
Upside
The potential for prices to move up.
Upside break-even
The upper price at which a trade breaks-even.
Variable Delta
A delta that can change due to the change of an underlying asset or a change in time expiration of an option.
Vega
The amount by which the price of an option changes when the volatility changes. Also referred to as volatility.
Vertical spread
Most commonly used to describe the purchase of one option and writing of another where both are of the same type and of same expiration month, but have different strike prices. Example: buying 1 XYZ May 60 call and writing 1 XYZ May 65 call. See also Bull (or bullish) spread and Bear (or bearish) spread
Volatility
A measure of the amount by which an underlying is expected to fluctuate in a given period of time. Volatility is a primary determinant in the valuation of options premiums and time value. There are two basic kinds of volatility, implied and historical (statistical). Implied volatility is calculated by using an option pricing model (Black-Scholes for stocks and indices and Black for futures). Historical volatility is calculated by using the standard deviation of underlying asset price changes from clos e to close trading going back 21 to 23 days.
Whipsaw
Losing money on both sides of a price swing.
Wide Opening
Refers to an unusually large spread between the bid and asked prices.
Witching Day
A day on which two or more classes of options and futures expire.
Writer
An individual who sells an option. If you sell an option to open a position, you're a writer.
Yield
The rate of return on an investment.